Indian shares and the rupee tumbled in line with global markets after Britain’s surprising vote to exit the European Union, but the sell-off should ease when the dust settles and investors focus on the oasis of growth in the subcontinent.

The immediate aftermath of Brexit could be foreign portfolio outflows as fund managers become risk-averse, seek safer havens and brace for a setback in global trade. The fledgling world recovery could be at risk and Indian companies with major operations in the UK such as Tata Motors and Tata Steel face a trying period ahead.

The EU is a key destination for Indian exports and the weakening of the trade bloc could hurt business activity. The slump in the value of the pound will cause unease for Indian exporters, particularly software services companies that get about 17 per cent of their revenue from the UK.

The top-30 Sensex plummeted 2.2 per cent on Friday to 26,397.71, its biggest one-day slide since early February. At one stage it tumbled as much as four per cent before clawing back. The drop wiped off all gains for the week and ended down 0.9 per cent.

The 50-share Nifty index also dropped 2.2 per cent to 8,088.60, with a weekly loss of one per cent, as Tata Motors slid 7.9 per cent and Tata Steel shed 6.4 per cent on Friday.

The rupee weakened to 68.22 against the dollar, within handshaking distance of its all-time low of 68.85 hit in August 2013, before paring the losses to close at 67.97, down 1.1 per cent. Record foreign exchange reserves of $363.83 billion should help India tide over any short-term volatility.

Still, there will be some positives for New Delhi.

“Looking at it from India’s perspective, a Brexit would weaken global growth and lead to a meaningful decline in commodity prices. This is only going to enhance both the relative and absolute appeal of India,” the Economic Times quoted Bharat Iyer of JP Morgan as saying.

For instance, the fall in crude oil prices after the Brexit vote should help New Delhi rein in accelerating inflation. Retail fuel prices have climbed more than five per cent since April, and lower world oil prices would pave the way for some relief. The same holds true for other commodity prices that were looking up.

“You will have lower commodity prices that will help the macro fundamentals: be it fiscal deficit, current account deficit or inflation, which will give the government more levers to pump up the investment cycle,” Iyer said.

Reform focus

There is a strong likelihood of the Brexit triggered global crisis forcing India to speed up the process of reforms needed to bolster growth.

“Our macroeconomic fundamentals are sound with a very comfortable external position, a rock-solid commitment to fiscal discipline, and declining inflation,” Finance Minister Arun Jaitley said in a statement after the Brexit results.

“At the same time, for the medium-term, we will steadfastly pursue our ambitious reform agenda — including early passage of the GST (goods service tax) that will help us realise our medium term growth potential of 8-9 per cent.”

New Delhi has a history of acting only when the pressure builds: in the early 1990s it was the brink of default that triggered the epic policy changes which opened up the economy and put the nation on a faster growth trajectory.

Last week, acclaimed central bank Governor Raghuram Rajan, whose current three-year term ends in September, abruptly announced he would be returning to the Chicago college where he taught earlier, putting to rest speculation about a second term. Many, including foreign fund managers, saw the announcement as a negative to independent thoughts and reforms.

True to form, two days after Rajan’s letter to Reserve Bank of India staff about his decision, New Delhi announced sweeping reforms opening up defence and civil aviation sectors to complete foreign ownership. The mandarins also liberalised rules allowing multinationals such as Apple Inc and furniture giant IKEA to open their own shops.

Investment rules were eased for food products, animal husbandry, pharmaceuticals and cable networks among others.

“Key reform decisions were taken at a high-level meeting chaired by the PM, which makes India the most open economy in the world for FDI,” Prime Minister Narendra Modi said in a tweet.

Bright spots

While a second term for Rajan, a former chief economist at the International Monetary Fund, would have warmed the cockles of investors and economists, his untimely exit due to political wrangling is unlikely to cause any long term damage.

“Rajan will be missed but he is not irreplaceable,” Kenneth Akintewe, senior manager at Aberdeen Asset Management in Singapore, wrote in a statement. “The impact of Rajan’s departure should not be overstated. Reform in India is more than the work of one man.”

Modi has been pursuing a dream of making India a manufacturing hub and his sales pitch since taking office two years ago has won laurels. Foreign direct investment in the fiscal year ended March jumped 29 per cent to $40 billion.

The $2 trillion economy expanded 7.9 per cent in the March quarter, the fastest pace among major global economies, and the momentum is expected to pick up in the coming year when easier rules find traction.

“The current Indian economic picture shows fundamentals are better than in most of the emerging-market world, with low inflation, a low and manageable current-account deficit, a significant reserve buffer and improving growth,” Andrew Tilton, chief Asia Pacific economist at Goldman Sachs in Hong Kong, wrote in a report.

Counting on India

Riding on New Delhi’s massive investment in infrastructure development, $32 billion in 2016-17 alone, some global companies are linking their growth to Indian demand.

BHP Billiton Ltd, the world’s biggest exporter of coking coal, raised its production forecast for fiscal 2016 by 7.5 per cent, betting on rising steel output in India and continued growth from China into the next decade.

“The developing world needs steel, steel needs coking coal, and we have the strongest resource position in the seaborne market,” Mike Henry, president of operations of BHP’s Minerals Australia unit, said in a statement.

India’s imports of coking coal are expected to rise eight per cent a year through 2021, well above global trade growth of about three per cent.

Vodafone, Europe’s biggest mobile telecoms group, is likely to file a draft prospectus in August and launch its Indian unit’s IPO in the fourth quarter to raise as much as $2.5 billion, Reuters reported quoting unnamed sources with direct knowledge of the matter.

It had 198 million subscribers at end-April, making it India’s biggest mobile operator after Bharti Airtel, with about a 19.1 per cent share of the total market, according to data from Telecom Regulatory Authority of India. There are more than a billion mobile subscribers in India, second only to China.

 The writer is a journalist based in India